JAPANESE YEN TECHNICAL FORECAST – USD/JPY, EUR/JPY, AUD/JPY CHART SETUPS AS CHINA TENSION ESCALATES
- USD/JPY just notched back-to-back weekly gains and could continue advancing if Dollar-Yen bulls can overpower technical resistance posed by the 108.00 handle
- EUR/JPY spiked about 250-pips early last week only to surrender more than half of the move by Friday’s close and highlights Euro-Yen reversal potential
- AUD/JPY edged nearly 2% higher over the last five trading sessions, but the Japanese Yen might recover recent downside against its pro-risk Australian Dollar peer
JPY price action remained under pressure last week and fell roughly 0.5% on balance measured by the Japanese Yen currency index. The Yen has weathered bearish headwinds for most of the month relative to top counterparts – like the US Dollar, Euro and Australian Dollar – as resilient market sentiment crushes volatility.
JAPANESE YEN: USD/JPY, EUR/JPY, AUD/JPY PRICE PERFORMANCE MONTH-TO-DATE (CHART 1)
Chart created by @RichDvorakFX with TradingView
Broad weakness in the Japanese Yen since April 30 has pushed spot USD/JPY, EUR/JPY, and AUD/JPY prices higher by 0.95%, 1.23%, and 0.62% respectively. With the Yen currently trading near the low end of its monthly range, however, there is potential for JPY price action to reverse its stretch of downside.
This is considering the likely chance that major currency pairs continue to ping-pong between critical technical support and resistance zones recently established. Nonetheless, the ebb and flow of market sentiment in response to conflicting fundamental drivers, such as renewed China tension and coronavirus vaccine hope, could weigh materially on the Yen.
USD/JPY – US DOLLAR TO YEN PRICE OUTLOOK NEUTRAL (CHART 2)
USD/JPY jumped to a five-week high this past Tuesday. US Dollar strength against the Japanese Yen has sustained primarily on the back of fresh Fed Chair Powell rate outlook that disappointed dovish expectations. The advance just extended by USD/JPY price action reiterates the bullish trend formed by a series of higher lows since May 07.
| Change in | Longs | Shorts | OI |
| Daily | 2% | 3% | 3% |
| Weekly | -5% | 3% | 1% |
This positively-sloped trendline might offer a healthy tailwind to USD/JPY price action going forward and help fuel a retest of last week’s high. Also, near the 107.40 mark, a confluence of popular moving averages show potential for the Dollar-Yen to stay relatively supported.
In light of technical resistance posed by the 108.00 handle, however, spot USD/JPY could struggle to continue climbing. Similarly, bearish divergence indicated by the RSI and MACD suggest that upward momentum recently recorded by USD/JPY price action has waned.
EUR/JPY – EURO TO YEN PRICE OUTLOOK BEARISH (CHART 3)
EUR/JPY jumped over 250-pips early last week in response to a 500bln Euro recovery fund proposed by EU leaders. Although, spot prices quickly ricocheted to the downside after EUR/JPY probed its upper Bollinger Band and failed to eclipse the 118.00 mark.
Euro-Yen price action correspondingly looks primed to keep sliding toward trendline support extended through the May 06 and May 14 intraday lows. If this area fails to keep spot EUR/JPY afloat, Japanese Yen bulls could flex their muscles and attempt to make a push for the 116.00 level.
AUD/JPY – AUSTRALIAN DOLLAR TO YEN PRICE OUTLOOK BEARISH (CHART 4)
Japanese Yen weakness against the pro-risk Australian Dollar stands out prominently when observing AUD/JPY price action over the last two months, but zooming out to a wider time frame reveals the dominant bearish trend.
Largely driven by a retracement in currency volatility and rebound in risk appetite, spot AUD/JPY trades about 17% above its March 18 bottom. Considering a pivotal test that still faces AUD/JPY, however, the impressive recovery still hangs in jeopardy.
| Change in | Longs | Shorts | OI |
| Daily | -23% | 5% | -2% |
| Weekly | -48% | 19% | -5% |
Furthermore, surmounting the 70.500 price could prove difficult for the Aussie-Yen. This technical level of support-turned-resistance, which roughly aligns with the January 2019 JPY flash crash and August 2019 swing lows, might keep additional upside at bay. On the other hand, topping March’s swing highs could open up the door for AUD/JPY bulls to target the 76.4% Fibonacci retracement of its year-to-date range.
Keep Reading – Stock Market Forecast: Should I Sell in May and Go Away?
-- Written by Rich Dvorak, Analyst for DailyFX.com
Connect with @RichDvorakFX on Twitter for real-time market insight
